goo u(x1, x2) = x²x2. In addition to her wealth w, the consumer already owns k units of good 1, which she cannot sell (she can, however, purchase more). Thus, for example, if k= 2 and she uses her wealth to purchase 3 units of good 1 and 1 unit of good 2, then she receives utility (3+2)2.1 = 25. (a) Sketch this consumer's utility-maximization problem in (₁,2)-space, where x, repre- sents the total quantity consumed of good i (i.e. including the k units of good 1 that she already owns). (b) Find this consumer's Marshallian demand, expressed in terms of quantity purchased (i.e. not including the k units of good 1 that she already owns). (c) Find the income effect on each good, as a function of prices and wealth, associated with a marginal increase in the price of good 2.

goo u(x1, x2) = x²x2. In addition to her wealth w, the consumer already owns k units of good 1, which she cannot sell (she can, however, purchase more). Thus, for example, if k= 2 and she uses her wealth to purchase 3 units of good 1 and 1 unit of good 2, then she receives utility (3+2)2.1 = 25. (a) Sketch this consumer's utility-maximization problem in (₁,2)-space, where x, repre- sents the total quantity consumed of good i (i.e. including the k units of good 1 that she already owns). (b) Find this consumer's Marshallian demand, expressed in terms of quantity purchased (i.e. not including the k units of good 1 that she already owns). (c) Find the income effect on each good, as a function of prices and wealth, associated with a marginal increase in the price of good 2.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.14P

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